Revenues Tell The Story For China National Software & Service Company Limited (SHSE:600536)

It's not a stretch to say that China National Software & Service Company Limited's (SHSE:600536) price-to-sales (or "P/S") ratio of 3.9x right now seems quite "middle-of-the-road" for companies in the Software industry in China, where the median P/S ratio is around 4.2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for China National Software & Service

How Has China National Software & Service Performed Recently?

While the industry has experienced revenue growth lately, China National Software & Service's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on China National Software & Service.

Is There Some Revenue Growth Forecasted For China National Software & Service?

In order to justify its P/S ratio, China National Software & Service would need to produce growth that's similar to the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 33%. This means it has also seen a slide in revenue over the longer-term as revenue is down 21% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the three analysts following the company. That's shaping up to be similar to the 26% growth forecast for the broader industry.

With this information, we can see why China National Software & Service is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From China National Software & Service's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

A China National Software & Service's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Software industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for China National Software & Service with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of China National Software & Service's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.